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Belmont Club

By Rights

February 9th, 2012 - 1:25 pm

The story in the housing market is well known. But now it’s happening in education. The bursting bubble which largely contributed to the 2008 financial meltdown is back — this time in the form of unpayable student loans.

Sheryl Nance-Nash at Forbes writes that “with student loan debt now topping U.S. credit card debt and few or no options available for distressed borrowers (including parents who co-signed and now face the loss of nest eggs, retirement homes and other assets), America faces the very real possibility of another major economic threat on par with the devastating home mortgage crisis, according to a new survey and report, Student Loan ‘Debt Bomb’:America’s Next Mortgage-Style Economic Crisis, by the National Association of Consumer Bankruptcy Attorneys (NACBA).”

Student borrowing crossed the $100 billion threshold for the first time in 2010 and total outstanding loans exceeded $1 trillion for the first time last year. … To put the heart-wrenching picture in perspective, Dave Ingham, a disabled Vietnam vet who co-signed for student loans for his son, shared his story at the press conference. “I have been personally and gravely affected by the student loan bankruptcy crisis and I know our family is one only of many thousands across America facing these issues.”

He and his wife live in a condo outside Minneapolis. She barely receives $500 a month in social security. The couple’s 35 year-old son lives with them, otherwise he would be homeless. He defaulted on his student loans as he has been out of work since October of 2009. “He is on medication for depression and anxiety. He keeps looking for work, but when an employer does a credit check they see the default, so he doesn’t get the job. It’s a vicious cycle,” said Ingham, who is being sued by a collection agency representing Sallie Mae. “My wife and I stand to lose our assets, including our condo. I realize my son made a mistake by being taken in by predatory lenders, but that does not mean his life and ours should be allowed to be ruined by these people.”

The answer suggested by some is to walk away from the “predatory lenders” who lent the students money to pay colleges to earn their worthless degrees. To fix things, President Obama is considering announcing a plan, without any need for congressional approval, to allow “some 1.6 million students to cap their loan payments at 10 percent of their discretionary income starting in 2012.”

Somebody is going to pay for the losses arising from the write-down on the student loans. Besides the holders of the debt, that someone is likely to be the taxpayer. The principal beneficiaries are going to those who made poor choices in their educational borrowings and the guys who provided the education.  They’ve got theirs. If the banks have to take a haircut — well, the government can help them out.

And the bigger the mistake they made, the more they get compensated. At least that’s the way it is working out in mortgages.

The bulk of the settlement money — an estimated $18 billion — will flow to the perennial home of social experimentation, California. Partly that’s because of the holdout tactics of California AG Kamala Harris, who undoubtedly drove a tough bargain with her fellow AGs. But it’s also because so much of the state’s real estate is underwater.

“California gets an extraordinary amount of it,” Miller acknowledged. “One of the amazing things was how much of a problem there is in California.”

See? It doesn’t matter if you did the correct thing. If somebody else screws up, you have to pay for it. Why? Because it is their right.

The word “rights,” which once started out as an enumerator of what government could not do, has now become it’s reverse: the collection of positive rights. These are now a laundry list of what government must provide. At taxpayer expense of course. Otherwise the government can just print the money to pay for it. Either way, it’s “free.”


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